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I got into Cryptocurrency and was wondering how the taxes would be addressed on profits and losses of trading cross currency.

  1. I have not converted my cryptocurrencies to any government backed fiat.
  2. I have sustained large gains and large losses with ended up allowing me to only see a 10% gain over my initial investment.

If I take the cryptocurrencies and convert them to USD, would I be subject to long/short term capital gains?

FYI: This is for a personal hobby, not a business.

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    It seems likely that you will have to pay capital gains on cross-currency trades. The IRS does not require that things be cashed out to fiat currency to be taxable. Any trade of property is potentially taxable. There is a provision where "like-kind exchanges" may defer captial gains, however it seems unlikely that the IRS will view cryptocurrency trades as like-kind exchanges. – Mike Zboray Jan 10 '18 at 19:33
  • @mikez your linked quote isn't relevant until people are filing taxes early 2019. – CQM Jan 10 '18 at 19:47
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    @CQM I was specifically referring the treatment of crypto-currencies trades as property trades which are taxable. This has been the IRS guidance since 2014 and is unchanged by recent tax policy changes AFAIK. Other topics mentioned in that article like pass-through entity deductions are, of course, covered by that bill and not applicable to 2017 taxes. – Mike Zboray Jan 10 '18 at 19:56
  • @mikez the 2018 and onward tax law completes removes like-kind trades from the tax code, except for real estate. The IRS will never have to make a concrete decision on crypto-crypto trades anymore since they are all taxable now, it isn't worth their time to challenge 3 years of unclear guidance. – CQM Jan 10 '18 at 23:33
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Taxes would be applied the same way as gains/losses on stocks. As soon as you sell your cryptocurrency, it will become subject to capital gains/losses. Whether it is short term or long term depends on how long ago you bought them. If your marginal tax bracket is at 15% and you have held your cryptocurrency for over a year, you will owe nothing. Otherwise you can expect to pay about 15% on your gains (offset by your losses).

  • What would qualify as a sale ? Say for instance, If I buy BTC for $100 and it qrew for $110, then I use the BTC to buy $110 worth of ETH, am I making a sale here ? would this $10 be considered a profit, though I did not realize in FIAT currencies ? – Prageeth Saravanan Jan 11 '18 at 15:12
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    @PrageethSaravanan yes, as of right now that is the case. If you take your crypto and buy anything with it, even other crypto, that is a sale. There has been talk of changing that in the future, but I wouldn't count on it. – BlackThorn Jan 11 '18 at 16:11

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